{"id":6596,"date":"2022-10-13T10:00:00","date_gmt":"2022-10-13T10:00:00","guid":{"rendered":"http:\/\/ci02ada204e00026d0"},"modified":"2025-01-28T14:45:34","modified_gmt":"2025-01-28T14:45:34","slug":"market-braces-for-volatility-with-upcoming-cpi","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/markets\/market-braces-for-volatility-with-upcoming-cpi","title":{"rendered":"Preparing For The CPI Reading: Market Braces For Volatility"},"content":{"rendered":"
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The below is an excerpt from a recent edition of Bitcoin Magazine Pro, <\/em>Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, <\/em>subscribe now<\/em><\/a>.<\/em><\/strong><\/p>\n

Markets Prepare For CPI Surprise <\/h2>\n

The U.S. Producer Price Index (PPI) data was released on October 12, 2022, a day before the highly anticipated consumer price index release the following morning. In short, it\u2019s not a good sign for those expecting a below-consensus CPI beat. Although headline PPI is coming down, the month-over-month (MoM) growth came in higher than expected at 0.4% (consensus: 0.2%) and the headline annual change came in at 8.5%. PPI has less of an impact on immediate market moves compared to the CPI as it doesn\u2019t account for inflationary costs being passed on to the end consumer. Still, it\u2019s an inflationary measure that gauges if businesses are facing accelerated prices and tends to move in the same direction as CPI. <\/p>\n

CPI consensus is 0.2% MoM so an overshoot of even 10 basis points could send the market into another significant downwards move, killing any Federal Reserve pivot hope left. <\/p>\n

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This is not the only sign in favor of a higher-than-consensus CPI print. Previously, we mentioned the Cleveland Fed Inflation Nowcasting<\/a> data which projects a 0.32% headline CPI MoM change and 8.2% headline annual change. That said, 17 of the last 19 nowcasting forecast reports were actually under the CPI reading. Recently this tool has been closer than most consensus forecasts but consistently underestimates the actual CPI data. When the more conservative CPI forecasters are predicting a consensus beat, tread cautiously. <\/p>\n

Although PPI data can give us an idea of the CPI direction, they don\u2019t move the markets like CPI data has over the last year. A key metric to watch for what the market is thinking is the U.S. 2-year Treasury yield, currently just shy of 4.3%. As of today, the latest upward momentum is stalling and is on pause, which can signal that the market is not quite ready to buy the latest Fed comments on rate hikes to 4.5% until they see the CPI print. <\/p>\n

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Where CPI lands relative to consensus is anyone\u2019s guess, but the markets look to be waiting for their next direction until that data comes out. The main medium-term concern, beyond the data, is still that Core CPI will stay at a 5-6% annual growth rate for many months. As it lags heavily, rent inflation is a major component that will likely further increase before turning over. Medical care services is also a component that rose significantly in August and continues to do so as it\u2019s more affected by stickier labor costs<\/a> that are also rising. Despite oil\u2019s rise over the past two weeks, energy may be less of a short-term factor in the September data as commodities continue to turn over. But the latest oil prices could easily come surging back amid OPEC production cuts and winter shortage demand approaching. <\/p>\n

What Does It Mean For Bitcoin? <\/h2>\n

In our last piece, we emphasized the lack of historical volatility in the bitcoin price right now. This won\u2019t last and the market is wound up for a fairly volatile move one way or the other. The CPI print could easily be that catalyst. If we\u2019re to see a move to the upside, our framework is still that the move will be a temporary rally to blow out leveraged shorts, take liquidity and likely reverse back to the downside. A large CPI surprise could send the market on a trajectory to test a lot of liquidity and stop losses just below $18,000. That\u2019s the surprise CPI bear case. Again, look to the equities market direction to determine the short-term trend. <\/p>\n

With all of this said, the game is now patience. As monetary policies continue to prove ineffective and\/or completely destructive, bitcoin will still be here. Many will realize it never \u201cdied\u201d and it will have a place in the world beyond a high beta correlation. <\/p>\n

Relevant Past Articles:<\/h4>\n